FTR: A modest year ahead in truck demand

Demand for Class 8 trucks will rise only modestly-- from 241,000 units this year-- to 261,000 units across North America next year, per freight analysis & forecasting firm FTR Associates.

FTR president Eric Starks said during the most recent installment of the company’s Truck & Trailer Outlook webinar series that most economic indicators actually signal favorable conditions ahead for trucking.

That would suggest rising demand for trucks. However, FTR reads the economic tea leaves very closely.

The upshot is Starks said the uptick in truck demand will come from replacement vehicles—not ones bought in concert with business expansion.

“The high number [recorded on our Trucking Conditions Index] doesn’t necessarily translate into higher rates or higher revenue,” Starks pointed out. “It only means that those who participate in the trucking sector are doing okay or are healthy.”

On the other hand, he said freight volumes are “moving in a positive direction. The freight environment is relatively healthy and in some cases, very strong.”

“It’s a mixed picture, but the bulk of the items are suggesting healthy tonnage,” Starks emphasized.

Turning to truck utilization as an indicator of future new-truck demand, Starks said it now sits in a “sweet spot” and that indicates that most new-truck orders will be replacement vehicles.

As for freight rates, Starks said they have been trending up in the months since the rebooted Hours-of-Service (HOS) rules went into effect on July 1st. He said to expect rates to rise right through next year.

Starks also pointed out that the Institute for Supply Management (ISM) manufacturing index has been trending in expansion mode for the past six months. In fact, the index’s November reading was the highest since April 2011.

In addition, the ISM order index, a leading indicator for industrial production, points to continued manufacturing growth in the US.

Taken together, that’s good news.

But on the other hand, Starks said that data around GDP for the third quarter of this year indicates inventories have increased.

“From a manufacturing and freight standpoint, that’s not a good sign,” he explained. “And it creates a concern if inventories get too bloated.”

Another negative in the picture that Starks pointed to was what he termed the “disappointing” Class 8 orders for November.

He said they came in at 20,900 units—5,000 lower than in October—and that -- despite November that being a traditionally strong month.

“Normally November is one of the strongest months of the year,” Starks explained. “So it doesn’t give me a whole lot of confidence to say there’s a huge pent-up [new-truck] demand in the system.”

While FTR expects just a 20,000-unit uptick in Class 8 demand next year, the firm is also forecasting a marked reduction in medium-duty truck orders for 2014-15.

Although noting that the three-month “moving average” for medium-duty truck orders has been “fairly stable since the beginning of 2011,” Jon Starks, FTR’s director of transportation analysis, said the firm is downgrading its forecast for Class 4-5 trucks from 85,000 units to 77,000 units in 2014.

Likewise, for Class 6-7 trucks, it is looking at 107,000 instead of 110,000 units next year.